QUARTERLY REPORT IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII PERIOD ENDING 30 JUNE 2015

Hillgrove Resources Limited (ASX: HGO) reports for the quarter ended 30 June 2015

HIGHLIGHTS

 Finalisation of Debt, Performance Bond and Discretionary Hedging Facilities, along with an equity raising were undertaken during the quarter.

 Hillgrove's copper hedging continues to support the revenue stream, with the pricing of the additional hedging placed in April and May in the top 18% (approximately) of AUD copper prices experienced since late 2011.

 New CEO and Managing Director (Steven McClare), Interim CFO (Paul Kiley) focused on simplification/consolidation and cost reduction across the Company.

 The cut-back in Giant Pit continued on plan, with ore from satellite deposits within the cutback being processed and AUD6.3 million of pre-strip undertaken in the quarter.

 Production of 4,138t contained copper in concentrates from the Kanmantoo Copper Mine for the quarter remains in line with FY15 guidance.

 Record plant throughput was achieved with 1,041kt of ore processed, at a record low of AUD5.60/t. C1 cost for the quarter of USD2.13/lb (AUD2.74/lb) remains in line with FY15 guidance.

 The Controlled Potential Sulphidisation (CPS) plant for the treatment of oxide ore completed construction and was commissioned in late April. The first trial was successfully completed in May.

 Copper recovery was lower during the quarter, impacted by transitional ore from the upper levels of Giant Pit, lower feed grade and the CPS commissioning.

 Exploration continued during the quarter with a detailed helicopter-borne EM survey over an area of 87km2 or 520 line kilometres completed.

 Cash on hand as at 30 June 2015 was AUD8.6million, with total debt increasing from AUD15.0 million to AUD18.2 million at the end of the quarter (due to the refinancing recently completed). Net debt stands at AUD9.6 million as at 30 June 2015.

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EXECUTIVE SUMMARY

Hillgrove Resources Limited (ASX: HGO) announced on 25 May that Mr Steven McClare had been appointed as the new Chief Executive Officer and Managing Director of Hillgrove Resources Limited and Mr Greg Hall would be stepping down after two and a half years. The Boards renewed strategic focus on mine-site operations at Kanmantoo viewed Steve's previous role as General Manager - Kanmantoo Copper Mine as ideal to lead the simplification and cost reduction initiatives across the Company.
Hillgrove finalised the refinancing of its debt and performance bond facilities and the launch of a fully underwritten non-renounceable rights issue on 25 May 2015. The debt finance facilities comprise a USD14 million Pre-Export Facility loan (plus up to a further USD6 million subject to conditions), deferral and extension of price participation obligations, AUD20 million performance bond facility and associated commodity hedging facilities for the Kanmantoo operation.
In addition, Hillgrove raised AUD10.08 million under a fully underwritten pro-rata non-renounceable rights issue of 40,310,719 new fully paid ordinary shares to its shareholders on a 3 for 11 basis, at a fixed price of AUD0.25 per share on 23 June 2015. Subscriptions under the offer totalled approximately 50% of entitlements with the underwriters of the offer, Freepoint Metals and Concentrates LLC and Wilson HTM Corporate Finance Ltd, subscribing for 70% and 30% respectively of the shortfall.
The Company is pleased to report copper production of 4,138t copper in concentrates for the quarter at a C1 cash cost of USD2.13/lb (AUD2.74/lb).Copper and gold production remain within guidance for FY15. Mining was completed in the Emily Star Pit, which reconciled positively for metal produced against the original Reserve estimate during the quarter, albeit with slightly lower grade and increased ore tonnes. Mining continued in Giant Pit with AUD6.3 million of pre-strip undertaken.
A processing throughput record was achieved with 1,041kt of ore processed during the quarter. The first Controlled Potential Sulphidisation (CPS) trial was successfully completed during the quarter. The second trial has just been completed and has also been successful.
Revenue for the quarter was AUD31.3 million at an average realised price for copper of AUD3.66/lb (USD2.81/lb), with cash on hand at quarter end of AUD8.6 million. The Company took advantage of the favourable copper pricing and exchange rate conditions in April and May placing additional hedging to enhance its program and protect medium term cash flows, with 6,500mt of hedging added at AUD7,917/mt (AUD3.59/lb) and 7,500mt added at AUD7,911/mt (AUD3.59/lb).
The geophysical contractor has completed a detailed helicopter-borne EM survey over an area of 87km2 of prospective geology for sedimentary-hosted sulphides, including copper, lead, zinc and gold. This survey took place in late April and early May, covering 520 line kilometres in total. It represents a step change in exploration strategy for the Company, seeking to discover new economically-robust resources in the district.
The Company's Indonesian exploration projects at Sumba and Birds Head continued on a care and
maintenance basis, with a review of these assets underway.

KANMANTOO COPPER MINE, SOUTH AUSTRALIA

Mining Lease 6345 (Hillgrove 100%)

Overview

The Giant Pit cutback continued to produce ore from a series of satellite orebodies within the cutback. This ore is now all primary sulphide and is being fed directly to the ROM. Mining was completed in the Emily Star Pit, which reconciled positively for copper metal produced against the original Reserve estimate during the quarter, albeit with slightly lower grade and increased ore tonnes. Backfilling into the Nugent Pit has commenced, providing a short haul option for the waste and potential to scavenge further ore as backfilling progresses.
The processing plant again performed very well with record mill throughput, and was able to offset the impacts of lower grades with higher mill throughput. Recovery was below plan as a result of lower overall head grade, the treatment of remaining older lower grade stockpiles, transitional ore and the initial CPS trial.

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Safety and Community

The quarter saw the twelve month Total Recordable Injury Frequency Rate (TRIFR) increase to 19. The rate over the last six months (4 injuries) is considerably improved in comparison to the preceding six months (10 injuries). Enhanced compliance implemented with the integrated risk management system and focus on frontline risk awareness continues.

FIGURE 1. TOTAL RECORDABLE INJURY FREQUENCY RATE

Meetings continued with the local community through the Kanmantoo Callington Community Consultative Committee (KCCCC), with key achievements including the launch of a KCCCC website, discussions regarding the possibility of further expansions to the north of the current Pit and Master Planning for the local area.

Operations - Mine

Mining production from the open pits was 5,313kt (1,722k bcm) total material mined for the quarter ended
June. 1,049kt of ore was mined, with 149kt of oxide and transitional ore placed onto long term stockpiles.

TABLE 1. KANMANTOO COPPER MINE PRODUCTION STATISTICS

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FIGURE 2. KANMANTOO COPPER MINE TOTAL BCM

Operations - Crushing and Processing

Mill throughput and reliability continued to be high during the quarter.

FIGURE 3. KANMANTOO QUARTERLY MILL TONNES, COPPER RECOVER AND MILL RUN TIME

* With change to 31 December year end, July was included again in milled tonnes for September quarter for comparison purposes.

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Mill throughput for the quarter again increased significantly to 1,041kt of ore milled at the lower average grade of
0.49% copper, with ongoing process control and improvements continuing to provide excellent milling costs per tonne of feed ore. With the substantially increased mill throughput the quantity of ore processed is higher than plan and includes all low grade being mined. This impacts the overall head grade, but the incremental processing cost is low and this strategy enhances cash flow.
The copper recovery of 82% was lower than previous quarters due to the mineralogy of the ore being processed and principally due to the combination of the lower head grade, processing of transitional (oxidised) material from the upper areas of Giant Pit and long term stockpiles and the initial CPS trial. The copper recovery in areas of primary sulphide remained consistently above 90%, as per historic results.

CPS

The AUD3.0M capital projects expenditure for the construction of the controlled potential sulphidisation (CPS) plant undertaken in the latter half of 2014 and early 2015 has been completed with the CPS commissioned in May as expected. The new plant is designed to enable controlled conditioning and processing of oxide ore in a batch process and higher recovery of copper through the primary flotation circuit. Originally two seven day batch trials were planned during FY15, and then for four months of full production batch processing of oxide ore from November 2015 to February 2016.
The first seven day batch trial was successfully completed during the quarter and the second trial has since been successfully completed. Rather than four months of full production, it is now likely the CPS parcels will be batched in discrete samples throughout the year as the concentrate has proven to be both saleable and suitable for shipping in a conventional manner.

Costs

Mining unit costs were stable at AUD11.30/bcm. Processing unit costs continued to decline, achieving a record low of AUD5.60/t.

FIGURE 4. KANMANTOO QUARTERLY MINING UNIT COSTS

The C1 cash cost of USD2.13/lb (AUD2.74/lb) for the quarter remained steady compared to the previous quarter. Lower head grade is the dominant driver of higher costs in 2015 compared to 2014, which is partially offset by favourable movements in foreign exchange.

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FIGURE 5. KANMANTOO QUARTERLY PROCESSING UNIT COSTS

TABLE 2. KANMANTOO COPPER MINE COSTS

NOTES TO TABLE 2:

Deferred Mining: Within each pit, the cost of higher waste benches, proportional to the copper contained in the ore, is normalised for the impact of strip ratios and copper grades over the life of specific pits. Pre-Strip: Upper levels of pits where the strip ratio is greater than 10:1 (waste:ore) are capitalised and amortised over the life of the mine based on metal.

Ore Inventory Adjustment: Mining costs per tonnes of ore added to (-'ve) or processed from (+'ve) long term stockpiles. In this quarter, further quantities of oxide and transitional ore were added to long term stockpiles, partially offset by a quantity of low grade primary ore removed from stockpiles and processed. In addition to this, during the quarter a Net Realisable Value (NRV) adjustment of stockpile valuation occurred, which is also reflected in the Ore Inventory Adjustment.

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Shipping

During the quarter, Hillgrove shipped its twenty-sixth and twenty-seventh shipments of copper concentrate of
10,351WMT (9,437dmt) and 10,265WMT (9,235dmt) respectively.

Revenue and Hedging

Revenue for the quarter was AUD31.3 million at an average realised price for copper of AUD3.66/lb
(USD2.81/lb).
Hillgrove has continued its active approach to hedging to support its Kanmantoo Mine revenue stream from short term falls in the copper price (Figure 6). Consistent with this strategy, the Company took advantage of the favourable copper pricing and exchange rate conditions in April and May placing additional hedging to enhance its program and protect medium term cash flows, with 6,500mt of hedging added at AUD7,917/mt (AUD3.59/lb) and 7,500mt added at AUD7,911/mt (AUD3.59/lb).

FIGURE 6. HILLGROVE RESOURCES HEDGE BOOK

This is an excellent outcome for Hillgrove with the pricing of the additional hedging placed in the top 18% (approximately) of AUD copper prices experienced since late 2011.
This program has now provided Hillgrove with 24.2kmt of hedging at an average price of AUD7,738/Mt (AUD3.51/lb). With this total hedging, Hillgrove has committed coverage for approximately 50% of payable copper out to December 2017.
In addition to the copper hedging, post quarter end, Hillgrove also completed 1,125 ounces of gold hedging at an average price of AUD1,556/ounce in order to further support its Kanmantoo Mine revenue stream for the remainder of 2015.

Exploration Program

Hillgrove continues to press ahead with exploration initiatives targeting an increase to mine life at the Kanmantoo Mine. In line with the three pronged company exploration strategy, the following advancements have been made.

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Regional HeliTEM Survey

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Hillgrove is pleased to report the geophysical contractor (CGG International) has completed a detailed helicopter- borne EM survey (HeliTEM) over an area of 87km2 of prospective geology for sedimentary-hosted sulphides, including copper, lead, zinc and gold (Figure 7).
This survey took place in late April and early May, covering
520 line kilometres in total. Most areas were flown at 200m EW line spacing, but selected interest areas were flown at a tighter 100m spacing. During the QAQC process, it was evident surficial conductivity issues were minimal and bedrock conductivity contrasts were excellent.
CGG is currently undertaking an exhaustive processing of the data to remove noise and cultural effects (e.g. powerlines and infrastructure), which were expectedly numerous in some areas. Upon delivery of the data to Hillgrove by the end of July, it will be handed to our consultant geophysicist who will begin the process of interpreting the data, identifying anomalies, defining their size, depth and orientation, modelling, and then finally, ranking the anomalies. Hillgrove will report the results once they are available.

FIGURE 7. SPATIAL COVERAGE OF RECENT HELITEM SURVEY OVER EXPLORATION TENEMENTS, ON A TMI BASE (at right)

Aircore//Slimline RC Drilling Program

Hillgrove undertook a program of 44 shallow slimline reverse circulation (RC) drillholes immediately outside the Kanmantoo Mining Lease to test some new conceptual targets generated from existing electrical survey data and the newly acquired gravity data (Figure 8). Holes were drilled to a maximum of 82m to test shallow sedimentary-exhalative targets and map subsurface geology in areas of poor exposure. A total of 1,990m were drilled.
Samples for each metre have been tested by hand- held XRF to delineate anomalies and determine sampling strategy for chemical assay, slated for submission in July. Of immediate interest are several metres of Cu-anomalous samples immediately south of the mine lease at Auberts, which coincide with gravity trends interpreted to depict the southerly continuation of the mine host garnetiferous lithologies. Historic drilling in this area had reported broad sub- economic Cu-Pb-Zn intersections that had not been followed up because of size/grade thresholds.
Hillgrove is now aiming to define the aerial extent and nature of this mineralisation in light of future mining and processing considerations. Assays for the program will be reported in due course.

FIGURE 8. DRILL COLLARS FOR THE MULAWA AND AUBERTS AIRCORE DRILLING PROGRAM (GREEN DOTS) (at left)

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Historic drill pulp Assessment

In addition to the near-mine drilling initiative, Hillgrove is also analysing historic drill pulps for Auberts and other areas where certain elements were not routinely analysed, frequently including Zn, Pb, Ag and Au. These elements locally reach sub-economic grades in the Kanmantoo orebody (~5% Zn+Pb) and are spatially too small to have justified processing. A number of samples on the mine periphery reporting high sulphur content but only low copper and iron have raised the potential for near-surface base metal mineralisation that was overlooked during the former times of depressed Zn-Pb market conditions. Initially, the pulps are screened by handheld XRF, then selected samples resubmitted for laboratory multi-element assay. This initiative is on-going and results will be reported as they are delivered from the laboratory.

Giant North Exploration

In the recently recognised prospective zone north of the main Kanmantoo orebody (Kavanagh/Giant pits), Hillgrove will soon acquire the above mentioned HeliTEM and downhole EM to identify zones of higher conductivity. Following interpretation of this data and the 3D model, six further deep holes will be drilled along strike targeting a similar depth. These holes will be used for a more holistic 3D downhole EM exercise to refine the geometry, scale and characteristics of the overall mineral system, which in turn will be used to identify additional along-strike and up/down-dip conductive anomalies for more detailed drill testing in the immediate future.

INDONESIAN GOLD AND GOLD/COPPER EXPLORATION

A review of the Indonesian Assets is currently underway.

FIGURE 10. INDONESIAN ARCHIPELAGO

Local landholder relationships are being maintained at the projects.

BIRD'S HEAD COPPER/GOLD PROJECT, WEST PAPUA, INDONESIA

IUP40/2010 (Hillgrove 80%)

Hillgrove is an 80% shareholder in PT. Akram Resources which holds IUP40/2010 in the Bird's Head region of West Papua. Hillgrove is responsible for the management of exploration and development activities up to a decision to mine. The IUP covers 992.3km² and is valid until December 2016.

SUMBA GOLD PROJECT, INDONESIA IUP 322/KEP/HK/2009 (Hillgrove 80%)

Hillgrove is an 80% shareholder in PT Fathi Resources which holds IUP 322 on the island of Sumba. Hillgrove is responsible for the management of exploration and development activities, up to a decision to mine. The IUP Explorasi (Exploration and Mining Business Licence) covers 750km² and is valid until November 2015.

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HILLGROVE CORPORATE

Refinancing of Debt Facilities

On 25 May 2015 Hillgrove announced it had secured a Pre-Export Facility of USD14 million (plus up to a further USD6 million subject to conditions) with Ventures Australia LLC, a subsidiary of Freepoint Commodities LLC, and a deferral and extension of the existing price participation obligations with Freepoint Metals & Concentrates LLC ("Freepoint"), who have had a long standing relationship with Hillgrove since providing early seed capital for the Kanmantoo project together with a LOM Offtake Agreement. In addition, Macquarie Bank Limited will provide an AUD20 million Performance Bond Facility, primarily for the existing environmental bonds required to support the Kanmantoo project.
Both facilities have terms until 30 June 2018, with balances reducing from March 2016 for the Pre-export Facility and from March 2017 for the Bond Facility.
In addition, an Initial Minimum Hedging Program of approximately 25,000t of AUD copper swaps from July 2015 has been undertaken. There is also a discretionary hedging facility (which allows for up to 30,000t of AUD copper and 10,000oz of gold hedging).

Equity Raising

The equity raising was made to Eligible Shareholders of ordinary shares in Hillgrove with a registered address in Australia and New Zealand (and such other jurisdictions as permitted) as at Friday, 29 May 2015. The Offer opened on 3 June 2015 and closed on 15 June 2015, with new shares commencing trading on 23 June 2015. Further information in relation to the Offer made is set out in the Offer Booklet, filed with the ASX and mailed to Eligible Shareholders, together with their entitlement and acceptance form. Wilson HTM acted as the Lead Manager to the Equity Raising.
Hillgrove raised AUD10.08 million under the fully underwritten pro-rata non-renounceable rights issue of
40,310,719 new fully paid ordinary shares to its shareholders on a 3 for 11 basis, at a fixed price of AUD0.25 per share. Subscriptions under the Offer totalled 20,052,600 new shares for an amount of AUD5,013,150, which represented approximately 50% of entitlements. Entitlements not subscribed for totalled 20,258,119 new shares, being an amount equal to AUD5,064,530. The underwriters of the Offer, Freepoint Metals and Concentrates LLC and Wilson HTM Corporate Finance Ltd subscribed for 70% and 30% respectively of the shortfall.
The package will provide amortisation of debt repayments to align with the most recent Life of Mine (LOM) plan and additional equity will provide the ability to accelerate the exploration program of nearby targets in order to extend the mine life.

Sources and Uses of Funds - May 2015 to April 20161

1 The sources and uses take into account various inputs, including the pricing structure under the off-take agreement with Freepoint, existing cost structures and current production levels at Kanmantoo Copper Mine, processing and mine-site operating expenses, and existing hedging arrangements, which are subject to the Risk Factors referred to in Section 8 of the Offer Booklet. It is important to recognise that the proposed use of funds is subject to change in line with emerging results, circumstances and opportunities, and may be changed by the Board at its discretion.

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Director and Management Changes

Hillgrove announced on 25 May 2015 Steven McClare had been appointed as the new Chief Executive Officer and Managing Director of Hillgrove Resources Limited, effective 27 May 2015, and Greg Hall would be stepping down after two and a half years. Greg guided the Company through a number of successes, including moving the mining operations to Owner Operated which delivered significant productivity and cost improvements, consistent performance above nameplate for the processing plant and recommenced exploration in the Kanmantoo region. The Boards renewed strategic focus on mine-site operations at Kanmantoo viewed Steve's previous role as General Manager - Kanmantoo Copper Mine as ideal to continue to build on these improvements and makes him uniquely positioned to provide the direction and operational oversight to increase production and develop Hillgrove's exploration activities moving forward.
On 28 May 2015 it was also announced Douglas Snedden had tendered his resignation from the Board and would not be standing for re-election at the Annual General Meeting being held that day as he wished to pursue other significant Board commitments. Doug provided valuable financial, audit and management experience to the Board for over three and a half years. In addition he held the position of Chairman on both the Audit and Risk and Treasury Committees, both of which Philip Baker has since been appointed to.
On 12 June 2015 Hillgrove advised the market Russell Middleton, Chief Financial Officer (CFO), had tendered his resignation from Hillgrove Resources and its subsidiaries. Paul Kiley was appointed to the role of Interim Chief Financial Officer immediately to facilitate the hand over and smooth transition over the following three months. On 8 July 2015 Paul also assumed the role of Company Secretary of Hillgrove Resources and its subsidiaries.

Annual General Meeting

Final proxy voting for the Annual General Meeting held on 28 May 2015 indicated more than 25% of proxy votes cast in respect of Resolution 1 (an advisory resolution) were against the adoption of the Remuneration Report submitted to shareholders. It was determined by the Board that a Poll on this resolution would therefore be conducted. The final outcome of the vote resulted in a first strike now recorded against the Remuneration Report. Resolution 2 was passed by a show of hands and Resolution 3 was withdrawn following Doug Sneddon's resignation from the Board as detailed above.
The Board wishes to acknowledge the general sentiment of shareholders in respect to management remuneration and the size and cost of boards. It is trusted that the reduced size of the management team and Board, and vigilant oversight of costs and expenditure over the coming year produce a positive result in respect of the Remuneration Report at the next Annual General Meeting.

Cash and Investments

Cash as at 30 June 2015 was AUD8.6 million.
Debt as at 30 June 2015 was AUD18.2 million with net debt at AUD9.6 million.

Hillgrove's listed investment portfolio was sold down for AUD0.23 million during the quarter.

CORPORATE INFORMATION

Issued Share Capital at 30 June 2015

Ordinary shares

Employee Performance Rights

Unlisted options

Share price activity for the Quarter

High

Low

Last (30 June 2015) Average Daily Volume

188,109,342

3,025,000

3,125,000

0.357

0.220

0.225

150,881

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SHARE REGISTRY REGISTERED OFFICE

Boardroom Limited

GPO Box 3993

Sydney NSW 2001, Australia

F: +61 2 9290 9655

T: (within Australia) 1300 737 760

T: (outside Australia) +61 2 9290 9600

Hillgrove Resources Limited

Suite 1709, Level 17 Australia Square Tower

264-278 George Street

Sydney NSW 2000, Australia

E: [email protected]

T: +61 2 8247 9300

For more information contact:

Steve McClare
Managing Director
Tel: +61 (0)2 8247 9300

ABOUT HILLGROVE

Hillgrove is an Australian mining company listed on the Australian Securities Exchange (ASX: HGO) focused on the operation of the Kanmantoo Copper Mine in South Australia, and with exploration projects on its Indonesian tenements. The Kanmantoo Copper Mine is located less than 55 kilometres from Adelaide in South Australia. With construction completed in late 2011, Kanmantoo is an open-cut mine with a throughput of 3.0 - 3.5Mt p.a., to produce up to 100,000 dry metric tonnes of copper concentrate per annum, containing approximately 20,000t copper and associated gold and silver per annum over the current life of mine.

Kanmantoo Global Mineral Resource Estimate at End February 2013

In Situ Resource

Long Term Stockpiles

Note: In Situ Reserve >0.20% Cu. Long Term Stockpiles >0.15% Cu.

Kanmantoo Global Ore Reserve Estimate at End February 2013

Note: In Situ Reserve >0.20% Cu. Long Term Stockpiles >0.15% Cu.

Competent Person's Statement

The information in this release that relates to Mineral Resources is based upon information compiled by Ms Michaela Wright, who is a Member of The Australasian Institute of Mining and Metallurgy. Ms Wright is a full-time employee of Hillgrove Resources Limited and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration to qualify as a Co mpetent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources a nd Ore Reserves (JORC Code)'. Ms Wright has consented to the inclusion in the release of the matters based on their information in the for m and context in which it appears.

The information in this release that relates to Ore Reserves is based upon information compiled by Mr Steven McClare, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr McClare is a full-time employee of Hillgrove Resources Limited and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration to qualify as a Co mpetent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code)'. Mr McClare has consented to the inclusion in the release of the matters based on their information in the form and context in which it appears.

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